North Asian UCO slumps to 33-month low amid EU antidumping probe on Chinese UCOME

North Asian used cooking oil prices plunged to a 33-month low on the back of the EU's new anti-dumping investigations on Chinese used cooking oil methyl ester, heightened shipping concerns and weak seasonal winter demand.

Platts assessed FOB North Asia UCO at $800/mt Jan. 5, down 14.89% from $940/mt on Sept. 15, 2023, S&P Global Commodity Insights data showed. The FOB North Asia UCO was last assessed lower at $744/mt on March 9, 2021.

End-buyers have been exercising caution and restrain in their biodiesel purchases following investigations by the European Commission, which has dampened biodiesel demand in the EU(opens in a new tab). In June 2023, the EC initiated an investigation into a complaint by a member state concerning potential fraud linked to biodiesel imports from China. This was followed by the EU launching an antidumping investigation into biodiesel imports from China in December 2023.

UCO demand is generally weaker during the winter season as European buyers tend to steer clear of purchasing large volumes of palm-based UCO during winter. The concern arises mainly due to a heightened risk of UCO solidifying during delivery given to its high Cold Filter Plugging Point. Although the US has increasingly overtaken Europe as the primary destination for China's UCO exports following the enactment of the Inflation Reduction Act in August 2022, market sources expect China's UCO demand to face some challenges due to the EU's ongoing biodiesel investigations.

Freight

Rising freight rates in the Red Sea and an increase in war risk insurance premiums have added salt to the wound for Asian biodiesel producers.

Freight costs for shipping UCO from China to Europe rose a sharp 30.8%-46.2% from $130/mt in November 2023 to $170-$190/mt as of Jan. 5 as factors such as general rate increases, war risk surcharges on insurances and Panama Canal congestion surcharges aggravated the situation. According to a market source, this would result in a loss of $90-$130/mt for producers.

Market sources said offers for UCO CIF ARA were heard at around $910/mt as of Jan. 5, while the offer for UCO FOB China was at $810-$820/mt as of Jan. 5, which translated to UCO FOB China prices of $720-$740/mt.

Furthermore, there was a substantial increase in ocean freight recently. Ocean freight, as of Jan. 4, was reported at $3,500 for a 20-foot container from Asia to Europe, a 250% surge from $900-$1,000 in November 2023, before the incidents at the Red Sea, a market source said.

"This closed the trade flow from Asia to Europe," a trader said.

Several shipping companies said they would avoid, either entirely or as far as possible, transit through the Red Sea after Yemen's Houthi rebels announced their intention of join the ongoing war between Israel and Hamas, attacking dozens of vessels passing through the Red Sea in recent weeks. Many have rerouted vessels via the Cape of Good Hope, which is a more costly and a longer voyage option.

Ships rerouting and waiting will cause delays and impact numerous biodiesel shipments, both CIF and FOB, with no clarity as to when the delays will end. For shipments on a CIF basis, a regional producer negotiated with buyers to delay biodiesel shipments, while for cargoes on an FOB basis, some buyers have postponed their orders in anticipation of freight rates normalizing once the situation in the Middle East improves.